Building a Profitable Fleet Business – Part 1
With competition for customers in the auto repair business so fierce, many shop owners are aggressively seeking a share of the lucrative fleet business. Perhaps it’s time you considered adding fleet business to your operation.
Why don’t more shop owners actively seek fleet business? Lengthy discussions with hundreds of auto repair business owners during the last several years have revealed many reasons why. Some can be laid squarely at the feet of potential fleet customers:
- Fleets often demand substantial discounts, which shop owners feel they cannot afford.
- Fleets often require priority service, which shop owners and service advisors feel will upset their production schedules.
- Fleets are notoriously slow payers, which causes poor cash flow and would mean financial hardship for many auto shops.
- Some fleets don’t pay their accounts at all, leading to account write-offs and resulting in a loss of profits.
- Fleets may require the repair shop to use customer-provided parts, which would lead to reduced gross profits and warranty problems.
- Fleets sometimes require the shop staff to deal with national fleet administrators, which can be time-consuming and perceived by shop owners to cut operations efficiency.
Shop owners must share some of the responsibility, however. Deeper discussions with shop owners who did take in fleet business revealed that most had not prepared a formal process to evaluate prospective new fleet customers. In most instances, these shops never asked for credit references or followed through with a formal credit investigation. They also never asked potential fleet customers for prior repair shop references, never actually contacted any former repair facility, and never visited the fleet customer’s place of business to interview the vehicle operators, nor see the physical condition of the vehicles. Instead, they just accepted the fleet customer when they arrived at the front door, and only learned of the customer’s excessive requirements as the relationship unfolded.
Once a shop owner had a negative experience with one fleet customer, they viewed all fleet business as undesirable, and usually chose not to have any further dealings with fleets.
In spite of all these negative perceptions, when handled properly, the right kind of fleet business can smooth out the busy and slow periods of your business, and add significantly to sales and net profits. That’s why many astute shop owners have aggressively sought and developed very profitable fleet business. But they did so by developing a well-thought-out plan.
Elements of a Good Plan
A good plan to generate fleet business is an absolute must, and encompasses several areas:
Assess your company’s capabilities. Your plan should begin with an assessment of the capabilities of your staff, facility, parts inventory, and equipment in order to determine which and how many fleet vehicles you can accommodate. Part of the plan should include being prepared to invest in some inventory and equipment iso that you can service a new fleet customer’s vehicles while remaining efficient in servicing your regular customers.
Your assessment should also include determining how many additional vehicles you feel you could efficiently process on a daily, weekly, and monthly basis with existing staff and equipment.
Should you consider discounting? This can be an effective incentive to encourage fleets to do business with you. However, we recommend selling your products and services for full value, and offer discounts only for prompt payment. That way, should you elect to extend credit, then have to collect a delinquent account via a collection agency or through the courts, you’d be pursuing full prices instead of discounted prices.
If you’re considering offering discounts on a basis other than for prompt payment, make sure you can afford them. When establishing discounts, take into consideration the total of all discounts offered to the fleet customer, so you don’t extend your discount budget.
Or, rather than discounts, consider rebates. Rebate amounts of up to a total of 10% could be offered at tiered purchase volume levels and be based on both purchase volume and prompt payment.
Determine your shop’s credit and collection policies. Once the assessment is performed, the next step before you begin actually soliciting fleet business is to determine how you expect your new fleet customers to pay for the products and services you’ll be supplying.
If you intend to extend credit, first determine how much you can afford to extend, and under what conditions. Discuss various options with your business consultant and/or accountant to determine what your cash flow will allow you to extend, or if you should consider getting a line of credit to enable you to extend credit to fleet customers. If you use borrowed funds though, you’ll need to generate enough gross profit on the additional financed sales to offset the interest costs.
Also, ask your attorney to develop an ironclad credit and collection policy, including a personal guarantee clause and an up-to-date credit application form. Along with these documents, you should be fully prepared to implement the policy, which also should include use of the services of a professional collection agency, if required.
Implementing acceptable methods of payment. When considering methods of payment, the best method would be to obtain a deposit based on their prior history of monthly repair costs. If this method is not feasible, you may want to consider one or more of the following options, in order:
- Payment by company check when picking up a vehicle.
- Payment with a company credit card when picking up a vehicle. The credit card should be debited weekly, bimonthly, or monthly.
- Billed by statement and paid by company check weekly, due the following Monday. No credit should be extended for the rest of the week unless payment is received for the previous week.
- Billed by statement and paid by company check bimonthly, due within two days of the end of the period. No credit should be extended for the next period until payment is received for the previous period.
- Billed by statement and paid by company check monthly, due by the 5th of the following month. No credit should be extended for the next period until payment is received for the current period.
Many companies use purchase orders to authorize work to be performed. Usually, these purchase orders must include the total cost and are tied to final payment. You should establish a policy that defines how you intend to accept the customer’s purchase order to cover those times when the repair grows as a result of an up-sell or unforeseen work that needed to be done.
Develop a marketing strategy. The next step is to develop a marketing plan to decide what types and sizes of fleet owners you want as customers, and how you’ll approach them. Many shop owners develop a direct mail piece to create interest, then follow up with a personal visit when contacted.
The more successful shop owners who seek fleet business develop a “fleet packet” that includes enough information for the prospective fleet customer to acquaint themself with the shop and staff. A fleet packet commonly includes the following elements:
- A brief letter of introduction of your company
- A menu of all services your shop offers, and its capabilities
- Some testimonials, with photos of individuals and/or company logos
- Contact information
- Business cards
- A compelling offer to motivate the prospect to give your company an opportunity to serve their needs
- A credit application
- A map showing your shop’s location
- Photos or a video of your facility and equipment
- A copy of a detailed vehicle history printout
- Any certifications and professional memberships your business and/or staff may have
- A web address that can provide some of the above, including a virtual tour
All of the above should be contained in an attractive folder with your company name and logo on the front. By presenting this folder and its contents to a prospective fleet customer, you’ll be demonstrating a professional marketing approach rarely used by the auto repair industry.
Join us next time for part two of this article, where we will address customer interviews, fleet agreements, and more!